Research shows customer centric businesses are more resilient in tough economic times. Understand the three phases of being customer centric and make your business more resilient.
The global pandemic that started early in 2020 seems to have triggered a series of impacts that is changing the world.
Dividing opinions from health policy, to an individuals rights, to how our communities actually function and right through despotic autocrats becoming even more bold, challenging the sovereign rights of nations and peoples across the world.
The reverberations of these ‘quakes’ are impacting the world economic structure, including potentially a shift from one global hegemony to another.
We have also learned that the founding ideas of economics – from Adam Smith in, The Wealth of Nations (1776), proclaiming that the visible hand of the market would lead to optimal outcomes for all (paraphrased); is essentially false.
From studies over the last couple of decades in Behavioral Economics, we can see that market actors make decisions based on emotion, memory and many other biases, and more often act in their own interest, rather than the benefit of all.
So. In amongst all this – how do we build a resilient business….?
How do we develop a business that will not only survive this environment, but thrive…?
Fortunately, someone has figured that out for us.
And that someone was Harvard Business School Professor, Ranjay Gulati (and his team).
Customer-centric businesses are more resilient.
The research was done for the period covering the last global financial crisis (GFC).
The results of his research were published in the book, Reorganize for resilience: putting customers at the center of your business (2009, Harvard Business School Publishing USA); and in an article that appeared in the Harvard Business Review March 2010 (Roaring out of Recession, pages 62-69).
The most resilient businesses are those that are customer centric.
Gulati refers to customer-centric organisations as being “outside-in”.
That is, these organisations can examine themselves as the customer sees them.
The term “outside-in” has since been picked up by the ‘Customer Experience’ industry and further supported by Forrester Research, published in their book “Outside-in” (2012) by Manning and Bodine.
Reorganize for resilience
During an interview at the time Professor Gulati was quoted, saying,
“The difference between the outside-in and inside-out perspectives is central to the book’s arguments. When I began this research, I naively assumed that all firms must indeed have an outside-in orientation whereby they put their customers first in all their decisions and actions…
It’s worth noting that the companies and business units in my study were tracked between 2001 and 2007. I picked these firms for no other reason than their genuine commitment and actions toward embracing an outside-in perspective. In that period these companies have delivered shareholder returns of 150 percent while the S&P 500 has delivered 14 percent.
They’ve also grown their sales 134 percent while the S&P 500 has grown just 53 percent. Clearly, these firms have found something that allows them to be resilient in both good times and bad. If you look at this data for the period 1999 to 2007, the results are even more striking:
These companies delivered shareholder returns of over 130 percent while the S&P delivered 0.6 percent. They grew their sales 233 percent while the S&P 500 has grown just 10 percent.”
Customer Centric ≠ Customer Experience
At the time there had been a few studies that proved the link between customer advocacy and improved results, but the results of this longitudinal study on how organisations faired during recessions really cemented the idea that being customer centric was good for the customer and good for the organisation.
Since the release of Reorganize for resilience, a lot of organisations have attempted to be ‘more customer centric’. However, these efforts often focused on the customer experience, which is only part of being customer centric.
Over time we have seen that because customer experience is only a part of being customer centric, many organisations have discovered that their investments in customer experience have not provided a return on that investment.
So how do we leverage from the Professor Gulati’s insights about outside-in customer centricity and building a resilient organisation?
There are three key phases of work.
Three Key Phases
The Customer Centric Business Model below shows the three key phases in establishing customer-centricity and business resilience.
Phase one is about understanding your various customer groups, the principle of two-way value (where the organisation obtains value by providing value to the customer). And then determining what your intent is with each customer group. What is it that you want to achieve through your engagement with these customer groups?
The analysis and thinking done in this first phase is captured in a couple of key documents for your organisation, your Customer Groups and Profiles – identifying your customer groups and conducting (ongoing) customer value analysis (what customers value), and the value you get from these customers (see two way value exchange).
The Customer Strategy is developed to summarise this analysis and your specific intent with each customer group. The Customer Strategy is equally relevant to businesses, government agencies and non-profit organisations as it helps clarify purpose and align resources.
Professor Gulati (2009, pages 38-39) refers to “The five C’s of your resilience tool kit”. From having a Customer Strategy you increase “Cross-enterprise coordination” which brings teams together to deliver value for specific customer groups. Common goals with specific customer groups. Which, additionally brings greater “Cooperation” across the organisation through also aligning the organisation’s purpose to the deliver of value with customers.
Phase two is about how we can articulate the value we offer to customers in a way that is relevant for the customer and clearly understood within the organisation. This phase is often missed, or perhaps completed without due attention, with some organisations assuming they communicate their value proposition and others hesitant to make a commitment in statements to the customer.
The value proposition for your customer groups has to occur at two levels.
Firstly, why you exist to engage with these customers, how you connect on value. And secondly, how you can deliver value for these customers.
Phase three is how the business organises itself into a value delivery system (or a set of systems that come together as one) that makes progress towards the outcomes specified in the Customer Strategy.
One of the common challenges in this area, is that organisations live in this space, all day, every day, right now. Whether we have developed a customer strategy or a value proposition, each one of us is actually delivering customer value now, some good, some bad – but not many with the discipline that consciously manages the delivery of customer value.
Professor Gulati (2009, pages 38-39) adds three more C’s for Resilience that come to life in Phase three, Clout, Capability and Connection.
Clout in about having the ability to shift resources to where they can deliver the most impact on the delivery of value. Delineating customer ownership, sharing customer information and reducing the effect of internal silos.
Capability for developing customer solutions and innovation through “cultivating boundary-spanning individuals” and a focus on the deliver of the Customer Strategy.
Connection, “shrink the core and expand the periphery’ and “redefining boundaries as porous, building a collaborative mind-set”.
Read more about this Customer Centirc Business Model.
Developing a customer centric approach
We have just seen (or read) that the key three phases of developing a customer-centric approach are (1) to develop the Customer Strategy, (2) meaningful Value Proposition Development at two levels and (3) coordinate the Delivery of Value.
Implementation of this process is iterative.
We need to make progress, learn and reapply this knowledge back into the three steps so that we maintain a constant focal point on relevant value for the customer, and concurrently value for the business.
The New Path to Profitability and Engagement discusses the five tenets of being customer centric as well as the nine imperatives for leaders in this age of the customer.
Conclusions for Business Resilience
Customer-centric businesses are resilient to market changes as they are in step with (1) their customer groups and (2) the two-way value exchange.
This is supported by the publication of longitudinal, empirical research that shows that “outside-in” organisations outperform the overall marketplace significantly (Gulati, 2009 and 2010).
Customer-centricity is the relevant source of sustainable advantage and innovation for any organisation (for profit, for members, non-profit, or government owned).
The application of these customer-centric principles delivers a range of insights and benefits for improved delivery of service and value.
The bullet points below name a few generic sources of benefit that come from becoming customer-centric;
- Greater alignment of resources
- Cost advantage – through productivity improvements found particularly in subsequent stages of the learning cycle of the management of customer information
- Greater levels of decision-making consistency
- Focus advantage from the Customer Strategy and Value Proposition with frontline people aiming with chosen customer groups and activities
- Improved levels of agility (from dynamically focusing on customer value)
- Speed and maneuverability advantage come through the capability to deliver and adapt to changing conditions faster than others
Read more about why your business needs a customer strategy.
And the Value of your Customer Portfolio.
Gulati, R., (2009) Reorganize for resilience: putting customers at the center of your business, Harvard Business School Publishing, USA
Gulati, R., Nohria, N. and Wohlgezogen, F., (2010), Roaring out of Recession, Harvard Business
Review, March, pages 62-69
Gilbert, S.J, (2010), The Outside-In Approach to Customer Service, HBS Working Knowledge,
Feb 16, http://hbswk.hbs.edu/cgi-bin/print?id=6201 3/03/2010